Costing

Definitions and Concepts

Outlines the many different types of cost: total cost, variable cost, fixed cost, average cost, direct cost, joint cost, common cost, sunk cost, marginal cost, incremental cost, embedded cost, and fully allocated cost. Each term denotes a separate and distinct concept.

Price Cap System

Price Cap Regulation Compared to Traditional Regulation

Discusses price cap plan characteristics, timely reviews, profit sharing, and services baskets.

Key Components of a Price Cap System

Discusses price cap beginning rates, the index variable, adjustments, LEC input prices, labor costs, and telecommunications industry productivity.

Traditional Regulation

The Basis for Traditional Rate of Return Regulation

Discusses the primary objectives and potential problems associated with traditional regulation.

Fair Value

Contrasts historical cost rate of return and fair value rate base. Discusses fair rate of return and its relationship to the utility's cost of capital.

Depreciation

The concept of depreciation as applied to public utilities; appropriate methods of computing depreciation; the concept of the estimated service life; net salvage value.

Working Capital

The relevance of working capital to ratemaking; non-investor capital sources which help to support the utility's investment; why accrued taxes payable are considered capital sources; the consideration of cost-free capital sources in the determination of the utility's revenue requirement.

Industry Structure

Telecommunications Competitive Services

The desirability of telecom competition; the problems of mixing competition with regulation; a utility's motives for underpricing competitive services; why such underpricing causes concern among regulators.

AT&T Divestiture

Major structural changes brought about by the AT&T divestiture; procedures established for implementing divestiture; how the Final Judgment was modified.